What does 'capital gains tax' refer to?

Capital gains tax refers to the tax imposed on the profit made from the sale of an asset. When an individual sells an investment, such as stocks, bonds, or real estate, for more than the purchase price, the profit they realize is considered a capital gain and is subject to taxation. This concept is integral to understanding how investments are taxed and encourages savvy financial planning, as individuals may look to minimize their capital gains through various strategies, including holding assets for longer periods or using tax-advantaged accounts.

The other choices suggest taxes applied to different types of income or assets but do not accurately describe capital gains tax. Income from wages is taxed under income tax, while a tax specifically on investments in real estate would not encompass all capital assets. Additionally, a tax on inherited property typically deals with estate or inheritance tax rather than capital gains, which is concerned specifically with the profit earned upon the sale of an asset. Thus, the correct definition relates specifically to the profit realized from selling assets.